QA on Medicaid Transformation Legislation

Explain the bill in one paragraph. This proposal would force Governor Nixon to request a waiver out of ObamaCare. It would eliminate Medicaid as the world has known it and replace it with the most free market public health system in the entire country. For the first time in history, Medicaid recipients would be empowered to make their own health care choices and incentivized to choose affordable health insurance plans by the injection of price competition into Medicaid.

Explain the price competition. When a recipient signs up for Medicaid, they will be presented with a list of available health insurance plans with a list of corresponding prices. If the recipient picks the lowest case plan, they will be allowed to keep a portion of the difference between that plan and the highest cost plan offered. In other words, recipients will be given the same price incentives that other Missourians face every time they decide which health insurance plan will work best for them. Price will matter for the first time in the history of our federal Medicaid program.

Has any state ever done this before? Not to my knowledge. Indiana introduced the concept of high-deductible health plans in 2008 when it created the Healthy Indiana Plan, but it did not introduce direct price competition on premiums for managed care plans in Medicaid.

If no state has ever done it before, how do we know it’s possible? There is no federal law or rule which directly prohibits incentive payments based on choosing an affordable plan. There is precedent for cash payments to Medicaid recipients as incentive to engage in healthy activities – and thereby bring down costs. These waivers have been granted in Florida and New York. Because there is no federal law or rule directly prohibiting the injection of price competition into Medicaid, the federal government has the legal authority to grant a waiver. Whether it does or not depends on whether the Obama administration is willing to put ideology aside and let Missouri reject the one-size-fits-all central-planning ObamaCare model.

What happens if we don’t get the Market-Based Medicaid waiver? If the federal government refuses to allow true price competition into Medicaid for the first time in history, then this legislation has no effect. It’s an all-or-nothing proposition.

Why not just scrap Medicaid altogether? The current situation presents a unique opportunity to craft the most market-based Medicaid program in the entire country. In the Cold War, we had a great battle between an economic system based on decentralized decision-making that relied on the wisdom of ordinary people to make economic decisions versus one that was centrally-planned with so-called experts making all pricing decisions. As Ronald Reagan would put it, “We won. They lost.” Unfortunately, central planning lives on in many ways in American governance, including through state Medicaid programs with prices set by government bureaucrats. We know from history that central planning does not work – and yet it persists in Medicaid. We also know that Medicaid is here to stay. The program has been in existence for 47 years with no serious effort ever made to repeal it. No matter what Missouri does on the ObamaCare expansion of this broken system, Medicaid will march on – consuming more and more of the state and federal budget. This legislation sets up another great test, with Missouri leading the way for a free market model that can save billions and perhaps trillions of dollars across the nation by introducing price competition to Medicaid for the first time in the 47 year history of the program.

What will this do to the federal deficit? According to the Heritage Foundation, the federal government spent $3.6 trillion in 2012. If Market-Based Medicaid becomes law, the federal share for Missouri would be increased by $1.2 billion in 2014 – a total which represents 1 / 3,000 share or 0.0003 percent of total federal spending. Further, according to Kaiser, the state of New York’s Medicaid program cost $52.1 billion and California’s cost $42.1 billion in 2010. Total Medicaid spending in 2010, according to Kaiser, was $389 billion. This bill could serve as a catalyst to save money by proving how injecting real free market measures into Medicaid could save billions of dollars if adopted nationwide. Just as businesses are willing to invest portions of the budgets in research and development of products and systems which can save their own company and their consumers money, so too should conservatives be willing to force the Obama administration to invest in Market-Based Medicaid with Missouri as the laboratory of democracy to prove, once again, that decentralized decision-making beats central planning every time.

What happens if the federal government breaks its promise? There’s an automatic trigger in the bill which rescinds all eligibility increases if the federal government breaks its funding promises.

How can Missouri taxpayers afford this? The legislation has a tremendous positive fiscal note for Missouri taxpayers. In its first eight years, the bill would save Missouri taxpayers at least $741.9 billion. In 2021, the first year Missouri would be responsible for its full 10 percent share, the bill has a positive fiscal note of $83.5 million. If we assume savings of just 1.5 percent from high-deductible health plans and a mere three percent for the introduction of price competition for the first time in the history of Medicaid, the bill would save Missouri taxpayers approximately $927.8 million over the first eight years and $109.1 million in 2021. In addition, a provision increasing cost-sharing for pharmaceuticals and specialist doctors visits has not been scored yet.

What does this do to the total number of Missourians eligible for Medicaid? Under this proposal, the number of Missourians eligible for Medicaid will decrease.

Can Missouri get an enhanced match rate at 100 percent of the federal poverty level? In December, eleven Republican governors wrote a letter to HHS Secretary Kathleen Sebelius requesting clarification on whether the enhanced federal match rate would be available at 100 FPL. Sebelius said no. That decision was a political decision, however, not a legal decision. As explained by Charles Miller, senior counsel at Covington & Burling, a mega-law firm in Washington D.C., the NFIB v. Sebelius case gave the Obama administration the legal authority it needs to deviate from the 138 percent requirement. Miller told the Washington Post:

“The court said . . . we’re not allowing you to enforce this so-called mandate,” Miller said. “So what is a mandate when you can’t enforce it? I think it’s not un-sensible to say that a mandate then becomes an option. . . . And in that context does it have to be all-or-nothing? Neither the Supreme Court nor the original statute addressed that point.”

Even assuming the Obama administration refuses to drop its ideological one-size-fits-all edict on this part of the law, there are other things states can do to require recipients to share costs when they make more than 100 percent of the federal poverty level. A new proposed federal regulation, for example, would allow states to require recipients to pay 50 percent of their costs from the first day of hospitalization. Existing federal rules allow states to require recipients between 100 and 138 percent of the federal poverty level to pay up to 10 percent of the cost of a service through co-payments and up to 5 percent of total family income. The subsidies available through a federal health insurance exchange for these populations would be less than the cost-sharing allowed by federal law. By adopting all cost-sharing requirements allowed in existing federal law, a state can make Medicaid a less affordable option for health insurance coverage than a private plan through a federally-facilitated exchange which would require the individual to choose their own plan and pay monthly premiums.

Why reduce Medicaid eligibility for some groups? Won’t this deny them access to healthcare? The bill reduces eligibility for groups above 100 percent of the federal poverty level because, by definition, people above the poverty level do not live in poverty. They should be expected to make personally responsible decisions to purchase their own health insurance plans. The reductions in eligibility are contingent upon the existence and functioning of a federal health insurance exchange which is offering subsidies for insurance coverage for the populations with reduced eligibility. Under these subsides, for example, a single mother who makes $20,628 per year (133 percent of the federal poverty level) will only have to pay two percent of her income, or $34.38 per month on premiums for an insurance plan in the exchange that covers her family. See this memo from Kaiser re: exchange subsidies. Reducing eligibility for Medicaid for these populations will result in better care as these Missourians choose their own private health insurance plans.

Why not just do reform only? First, because Governor Nixon is highly unlikely to sign a reform only bill, and would not have anything to offer the Obama administration when he demands the ObamaCare Medicaid opt-out. Second, because the powerful provider lobbies in our state hold enough sway in our state capitol that they could – and would – kill any effort at a reform-only bill. Third, reform-only does not solve the serious problem faced by rural hospitals in Missouri losing disproportionate share payments from the federal government to reduce the costs of charity care which federal law (EMTALA) requires them to provide. (Yes, this is a problem caused by the Obama administration and not us. But the argument that “because someone else did it, it’s not our responsibility to help” is like saying that we should ignore a person bleeding in the street after getting mugged because, well, “we didn’t do it, it’s not our responsibility to help clean up that mess.”) In order for real reform with price competition to ever become law, some increases in eligibility are necessary.

Why a high-deductible health plan? The high-deductible health plan is modeled after the Healthy Indiana Plan, a successful program started by Indians Gov. Mitch Daniels. Recipients are incentivized not to waste health care dollars because accessing care requires them to use funds in the Health Savings Accounts attached to their high-deductible plans.

What about the elderly, persons with disabilities, and those with chronic conditions? This bill does not impact elderly Missourians on Medicaid. Persons with disability and chronic conditions are carved out of managed-care and given “health care homes,” a care-coordination model started in Missouri by former Gov. Matt Blunt which has proven to save money.

Why is pharmacy carved-out of managed care? The Department of Social Services can manage pharmacy benefits through an ASO cheaper than managed care companies can because DSS gets pharmacy discounts for buying in bulk.

Why do the benefits of the transformed Medicaid plans match the benefits to be offered by plans in a federally-facilitated exchange? The benefits match in an effort to remove disincentives that Medicaid recipients currently have to taking a better job or working more hours. Unfortunately, the welfare state is set up so that it is morally repugnant but economically rationale for some welfare recipients to choose not to increase their income when they have the opportunity. We match the incentives so that a recipient on the verge of “churning-out” of Medicaid does not have the disincentive of losing health insurance coverage. Instead, their Medicaid plan will be rolled-over into an exchange plan with the recipient now responsible for premium payments.

Why provide for commercial rates of reimbursement to providers? Medicaid critics from both the right and the left have long decried that measly reimbursement rates for providers reduce the ability of recipients to actually receive care in rural areas because so few providers participate in Medicaid. In order to have a program which actually works for those who need it, provider reimbursement rates have to be competitive. This legislation presumes commercial rates of reimbursement which should increase the willingness of doctors to participate.

How will this cut down on fraud? Recipients will be given an electronic card which they will have to use when accessing health care services. These cards will allow DSS to track spending in real-time. Just as credit card companies are able to shut off a customer’s credit card after unusual activity, so too should DSS be able to identify unusual patterns of activity to prevent fraud. Perhaps even more importantly, managed care companies have incentives to reduce fraud and will likely do a better job of it.

What evidence is there that private plans produce better health outcomes for recipients than centrally-planned Medicaid?

Here are just a few of many studies on the issue:

– Children with asthma on Medicaid more likely to endure long hospital stays with “significantly poorer outpatient care.” Quality of Hospital Care of Children with Asthma: Medicaid Versus Privately Insured Patients, J. of HC for the Poor and Underserved, Vol. 12, No. 2 (2001), pp. 192–207.

How will this transformed system differ from managed care in the existing I-70 corridor? In the current managed care corridor, price is centrally-planned and set by the Department of Social Services. Bidders compete on the basis of the breadth of their network and services provided. In the transformed system, bidders will be required to compete on price, with the lowest cost conforming bid guaranteed acceptance. Bidders will be incentivized to make their plans as affordable as possible for Missouri taxpayers because they will want to win the guaranteed slot. In addition, they will compete for market-share on the basis of price from recipients who will be told that they will be rewarded for making affordable health care choices for the first time in the history of the federal Medicaid program.